From textiles to pharmaceuticals and automobiles, traditional business houses in India are transforming themselves into real estate powerhouses. If Jeh Wadia of Bombay Dyeing is rejigging his empire so that three-fourths of revenues in five years would come from building homes, offices and malls, Sanjay Lalbhai, the king of denim, says he will be a real estate czar in the years to come. Many of these firms have held huge land banks, which they either got when they acquired businesses from British firms, or have been handed down as heirloom through generations. Some of their old businesses shut down, or got beaten in the race by the fast-growing sectors like infotech and a result of market liberalisation. A few companies sold their land to builders to profit from the boom in the real estate market, but now many of them want to be builders themselves. “They have huge tracts of land, so why not,” asks Pranay Vakil, chairman of Knight Frank India, a real estate consultancy, which advises many of these firms. “If they do it properly, it will be a windfall for shareholders who have shown faith in the management for so many years.” “Why lose out on the development profit of the land we own,” says Sanjay Lalbhai, managing director, Arvind, India’s largest denim maker.
He says real estate is an important business for his company. While the group’s total revenues are close to Rs 5,000 crore, revenues from the real estate business today are only to the tune of Rs 100 crore. “But the future looks exciting,” he says. Arvind is starting to develop some portion of its 600-acre land bank in Gujarat and in Bangalore. It has already launched projects worth Rs 3,000 crore and by the end of March 2012, it will launch an additional Rs 2,000 crore worth of projects.

“Real estate (business) takes time. So in the next two-three years, we should see about Rs 1,000 crore revenues from real estate and this will multiply in the years to come,” said Lalbhai. Bombay Dyeing & Manufacturing, a 132-year-old company known for its textiles and chemicals business, is also undergoing a major transformation. The promoters and the company’s realty arm Bombay Realty has a land bank of around 10,000 acres spread across the country, including 700 acres of prime land in the city of Mumbai that were acquired at rock bottom prices, historically by group firms Bombay Burmah, Bombay Dyeing, Britannia and the current and erstwhile promoters in the 1800s and 1900s.

The promoters now expect over half of the company’s revenues this fiscal year to be generated by his realty business, growing to 75% in five years. So big has been the impact, Jeh Wadia, managing director of the company says, “We will essentially become a real estate firm in the years to come.”

“We are talking about an undisputed titled land bank of 10,000 acres. Coupled with our brand, we expect to leverage these land parcels for a superior profitable business proposition.” In 2010-11, the real estate division contributed around 25% of the company’s total revenue of Rs 1,950 crore. While realty developers continue to struggle and shell out expensive money to buy land parcels that remain a scarce commodity, traditional Indian business groups such as Godrej, Mahindra and the Tatas, apart from the Lalbhais and Wadias, already hold significant and prime land bank.

And this acts as a big advantage, as they take the plunge into a business, where returns are humongous and come faster. “It’s the biggest industry now. Having a strong brand name is a major source of advantage,” says Pirojsha Godrej, executive director at Godrej Properties, the realty development arm of the consumer products major Godrej. Godrej Properties, which was set up in 1990, today has a strong pipeline of 80 million sq ft projects. The realty arm currently contributes 5% of the group’s total revenue, and Godrej estimates the number will move to 15-20% in the next 5-7 years.

Source: 15. Oct. 2011, ET.